Mexico's Supreme Court to take up Carlos Slim TV case

June 25, 2012|Patrick Rucker | Reuters

(VALENTIN FLAURAUD, REUTERS)

MEXICO CITY (Reuters) - Mexico's Supreme Court will decide if billionaire tycoon Carlos Slim can enter the lucrative television market in a legal case that centers on whether the government botched a regulatory filing or officials intentionally let a deadline pass.

The case is due to reach the high court before the end of the summer. Slim, the world's richest man, is counting on a win.

Mexico has barred Slim from the television market until his home phone business, Telmex, gives fair access to rivals.

The court, though, could let Slim proceed if it decides officials forfeited the right to stop him when it mishandled the original, four-year-old Telmex paperwork for a television license.

Telmex was absorbed into mobile phone giant America Movil last year as Slim consolidated his holdings.

Documents reviewed by Reuters showed that in 2008 officials from Cofetel, the telecommunications regulator, considered allowing Telmex into the television market, swapped memos and even drafted a "no" decision, but ultimately failed to respond in the required time, thus legally opening a door for Slim.

Mexico's federal comptroller's office is now weighing sanctions against former Cofetel officials who mishandled documents and otherwise caused the delays that gave Telmex a legal foothold to enter the TV market, said an official from the comptroller's office who declined to be identified because he was not authorized to speak on the record about a pending case.

The case will likely become a test for a judicial system that has recently stood up to Slim and other powerful interests that have long shaped the country.

In a handful of recent decisions, the Supreme Court has consolidated regulatory power in the hands of Cofetel. The Telmex TV case will be a further test for the high court, analysts said.

"Will this be decided on a narrow technicality or whether the whole issue was tainted? That is the question for a court that has won trust as the final arbiter on these key telecom issues," said Shannon O'Neil, a scholar at the Council on Foreign Relations in New York and an expert on Latin America who has previously written about Slim and the telecoms industry.

BUNGLED RULING

Clues to the current dispute are found in a paper trail Reuters examined that dates back to July 2008, when Telmex first asked the government for a television license.

Senior Cofetel officials sent memos back and forth about the Telmex license and were aware of a 60-day deadline to make a decision, but did nothing as the regulatory clock wound down, according to documents and former officials.

A federal court last year found Cofetel took too long to make a ruling, which led to tacit approval for Telmex to enter a pay television sector that generates about $2.5 billion in revenues a year, according to an industry trade group.

Mexico's Communications and Transport Ministry (SCT), the arbiter of telecoms disputes, quickly froze the Telmex TV license and sent the issue to the Supreme Court for a final verdict.

Meanwhile, the comptroller's office has been investigating whether the Telmex application process was thwarted by gross negligence or tainted by corruption.

The agency is now preparing its final report on the conduct of a handful of Cofetel officials, said the official from the comptroller's office.

If the conclusions point to wrongdoing, it could open the door to a more serious investigation from the Mexico prosecutor's office.

Telmex declined several requests for comment on whether it would continue to push its case for a television license, even if the comptroller decides Cofetel officials wrongly aided the company.

Jorge Mena, a former Cofetel official under investigation for his handling of the Telmex bid, has lobbied for the phone giant since he left the regulator in mid-2010, according to several government officials. Mena declined to comment.

In the weeks before the deadline for Cofetel to hand down a decision in 2008, staff at the regulator often urged Mena to take some action, said one former official who asked for anonymity.

Hector Osuna, the president of Cofetel at the time, said his agency would never have approved the Telmex bid in 2008. The company is seeking a back door to the lucrative market, he told Reuters in August. "They are looking for a court to tell them 'You are the victim.'"

Government lawyers expect they can prevail in court because Telmex did not fulfill other steps needed to enter the TV market, such as paying a fee for the change of license.

"That payment could have been a million dollars or one dollar. But it had to be something. Without that, there can be no change in the license," said a government lawyer who declined to be identified because he was not authorized to speak publicly about legal strategy.

Early this month, a Telmex official said the company was not interested in taking part in a planned-for auction to broadcast television over the public airwaves.

The company instead is seeking permission to broadcast television through the existing infrastructure it uses to reach Mexican homes.